If the short-run macroeconomic equilibrium occurs with real GDP greater than potential output,the economy is
A)at its full-employment level of output.
B)experiencing a recessionary output gap.
C)experiencing an inflationary output gap.
D)threatened with a demand shock.
E)operating at full capacity.

Question

Quizplus · Accepted Answer

When the short-run macroeconomic equilibrium occurs with real GDP greater than potential output, it means that the economy is producing output beyond its capacity, causing an inflationary output gap. This is because the aggregate demand is exceeding the productive capacity of the economy, leading to upward pressure on prices. Therefore, an inflationary gap exists, and the economy is facing the risk of inflation.

If the Short-Run Macroeconomic Equilibrium Occurs with Real GDP Greater